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In Search Of Funding: 7 Core Principles To Raise Capital

What would you give for the inside scoop on how to build a $40 million dollar business?

Straight talk direct from one of the founders and current CEO who built the thing from scratch and recently hauled in over $50 million from Goldman Sachs?

Good news my friend.

Entrepreneur Clate Mask of Infusionsoft is set to unveil all his secrets just for you. Wisdom and advice you can implement immediately in your business no matter the size. Call it ‘Mask Unmasked’.

Freaked out on how to raise capital? No worries. Mask will give you concrete tips to apply so you can raise money too. Don’t know the slightest thing about how to really build a killer team? Fret no more. Mask has tips you can implement on how he went from a staff of 3 to over 400.

In fact, Mask has agreed to provide you so much valuable information we have to spread this thing out over a series of 7 articles.

So pull up a chair, grab some paper and a pen to take notes and let’s get this thing started with article number one.

In Mask’s first unveiling, we jump right into the biggest concern for most every entrepreneur alive: how to raise capital. Mask shares how it’s done and how he recently pulled off the infusion of cash from leading investment bank Goldman Sachs.

7 Core Principles To Raise Capital At Any Stage

Why am I not shocked at Mask starting here? He always does. But why? Some founders might think it a waste of time to figure this out.

But wait a minute… Mask and his team just signed the 800lb gorilla in Goldman Sachs with a cool $54 million in cash. Maybe he knows a thing or two here:

The starting point for any fundraising is to be crystal clear on your vision and passionately articulate your story. Your team, top to bottom, has to buy in and support the vision in order to convince anyone – your father-in-law or a Wall Street investment banker – to give you money. An early stage investor wants to know you have a plan and a top-tier VC firm wants to know the passionate person pitching them will stick around to turn this vision into a reality. They also want to know you’re committed to building a performance-based culture that aligns to your vision. Putting your vision front and center of every pitch for raising capital is a must.”

2.) Know Your Market. Really.

It seems super obvious and simple that you must ‘know your market’. But yet I watch dozens of entrepreneurs pitch their idea and not have the slightest idea who their customer really is or what market they’re playing in. As Mask explains, you have to nail this part to stand any chance of raising funds:

You can have the most inspiring vision yet still lack a believable story when it comes to the market opportunity. Especially for a Series A round — to know your market is really important. These investors want to see how big the market potential is, and proof you can scale to go after it. You have to know your customer base and have a strategic plan for how you’re going to attack it. Depending on the stage of investment, the investor is typically looking for a three to 10 times return in a reasonable period of time.

During the due diligence process in our Series C round which ended up with Goldman investing, we had to arrange interviews with partners, customers and industry analysts to validate the market opportunity. Especially as you plan to go after late-stage investments, it’s important to build strong relationships with the influencer groups that play a role in your success.”

3.) Know Your Needs

Ask 10 entrepreneurs how much money they really need to start or grow their company; watch 7 pull a number out of thin air and drop it in your lap. “Oh, I think a million dollars will do”. Wrong answer. Mask emphasises here:

As you move from early stage to mid-stage, it becomes more necessary to show why you need more funds. Series B rounds are notorious for citing sales staff, marketing opportunities and product development as ‘how’ the dollars will be used. Make sure your answers don’t have holes in them. Make it clear why you need more sales staff. Why an increased marketing budget will help you own the space. And why product development will move your product forward in competitive ways.”

4.) Know Your Metrics

And goodness — entrepreneurs serious about finding money should have solid proof and hard facts to back it up. Mask shares his insight:

As for metrics, we’ve seen the SaaS investing space really mature in the last two to three years. Our latest round was all about the CLV:CAC ratio (Customer Lifetime Value and Customer Acquisition Cost). Know what your key performance metrics are before you walk into those meetings. Be prepared to show how you’ve delivered results and how you will use the proceeds of a deal to drive greater results. No amount of vision or market opportunity will erase the need for an investor to feel confident in your ability to produce a great return with their money.”

5.) Snag Great Leadership

Venture Capitalist and friend Paul Jones pointed straight at the importance of team in my ‘12 Tips On Raising Venture Capital For Your Startup’ article here on Forbes. He nailed it under tip #4. Do you have a core team of solid players? Jones says it’s the ‘most important thing’ VCs consider before making an investment and Mask backs it up:

From Seed to Series C, your management team is critical to your fundraising efforts. In the early stages, having a competent, entrepreneurial team with passion and drive to succeed is what matters. As you grow and get to later-stage rounds, a team with a proven track record working with respected companies or with similarly-sized revenue experience helps build credibility. Also, in these later stages, the questions get harder and go deeper, so having a team around you that can anticipate what investors will request becomes even more critical.”

6.) Leverage Your Customers

Yes — turn your customers into advocates to help you raise funds. At any stage of your business, you should have what we call customer ‘evangelists’. Those who love and sing the praises of your business and it’s products/services. According to Mask, it’s all hands on deck…

Equally important is to build out your customer and partner references so that third party validation of your venture is unquestionable. Going back to my first recommendation, it’s important that your customers and partners know and support your vision. As you get to the late stage funding rounds, you’ll want to prep these sources to confidently talk about your product, company and your position in the market. Knowing that customers and industry influencers believe in your vision and that there’s a definitive need in the market will give investors at any stage confidence in your business.”

7.) Choose Wisely & Shoot For Multiple Term Sheets

Imagine the nightmare situation of marrying the wrong person? Like not just a little wrong — but way wrong. Same thing can happen when you choose your capital partner poorly. Mask sheds light through his own experience:

You may be tempted to take your first or biggest offer, but be selective. During our Series B, a top-tier firm was pretty serious about investing in us. The catch was they wanted us to sell our software to big businesses. Doing that would have been contradictory to our ‘why’. I knew at the time – and it’s been proven to me over time – that if we had given in to that request, we wouldn’t have received the Series C we did. Again, always start with your ‘why’ so you weed out the wrong firms early on. Whether series A, B or C, when selecting a VC partner, look at the following:

Right stage of investment. Do they usually invest in companies at your stage?

Interest and knowledge of your space. If the VCs show up with a deck about the market opportunity and your business model, that’s a good sign.

Fund in active investment mode. VC firms are always looking for the next great investment, but it doesn’t mean they have available funds to invest. You need to know that they are in investment mode.

Being selective also means getting multiple term sheets. It can be tricky to work with competing firms in only a few days, but it’s worth the challenge. You end up with several great term sheets and will have a better outcome in the end.”

The bottom line? Mask believes if you have a compelling ‘why’; an exciting market opportunity and can demonstrate the delivery of results, you can confidently raise money at any stage for your business.

Have questions for Mask related to raising capital and how he did it at Infusionsoft? Enter your questions in the comments section and he’ll answer them.

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